I wanted to buy an investment property. Where should I invest instead?

I’m 48 and had planned to buy an investment property, but after the recent tax changes, I’m no longer sure it stacks up. Looking at the numbers, it seems I would still be heavily out of pocket each year, even after rental income, interest, maintenance and other costs are considered. I estimate the shortfall could be about $30,000 a year.

I’m now wondering whether I would be better off investing the same amount over the next 12 years into shares or ETFs, or, alternatively, making extra superannuation contributions. If you had to choose between investing in shares outside super and putting more into super, which would generally make more sense? I’m also interested in the trade-off between flexibility and access to money with shares, versus the tax advantages of super.

I agree that shares or ETFs may now be more attractive than an investment property, particularly if the proposed tax changes proceed. Your estimate of a $30,000 annual shortfall sounds realistic.

Superannuation is probably the optimum long-term investment vehicle because of its tax advantages. The drawbacks are that your money is generally inaccessible until at least age 60 and there are limits on contributions.

In your situation, I would first maximise concessional contributions – the tax-deductible ones. In this financial year, the cap is $30,000, including employer contributions, rising to $32,500 after June 30. Keep in mind that super is simply a structure that holds investments, so you can still invest in shares, ETFs and similar assets inside super.

The drawback of investing outside super is that earnings and capital gains are taxed at your personal tax rate. Given that investments outside super are usually made from after-tax dollars, a better strategy may be to contribute surplus funds to super as non-concessional contributions.

Just make sure you always keep enough money outside super for emergencies and contingencies.

My wife and I are retired and financially comfortable, and we would rather see our money helping our grandchildren now than later. We have already given our three working grandchildren $50,000 each towards a future home purchase and plan to provide a further $100,000 each when they buy.

We are unsure whether it is better to give the money before purchase to increase the deposit and reduce the loan, or after settlement by placing it into the loan account as a financial buffer. We have been debt-free for many years and are unfamiliar with modern lending arrangements. Which approach is likely to work best?

I would generally prefer to see the money given before th